Improved Earnings Required Before Zhejiang Changsheng Sliding Bearings Co., Ltd. (SZSE:300718) Stock's 25% Jump Looks Justified

Zhejiang Changsheng Sliding Bearings Co., Ltd. (SZSE:300718) shares have continued their recent momentum with a 25% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 29%.

In spite of the firm bounce in price, Zhejiang Changsheng Sliding Bearings may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 28.5x, since almost half of all companies in China have P/E ratios greater than 36x and even P/E's higher than 70x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Zhejiang Changsheng Sliding Bearings has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Zhejiang Changsheng Sliding Bearings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Zhejiang Changsheng Sliding Bearings.

How Is Zhejiang Changsheng Sliding Bearings' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Zhejiang Changsheng Sliding Bearings' is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 56%. The latest three year period has also seen an excellent 42% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 24% during the coming year according to the two analysts following the company. Meanwhile, the rest of the market is forecast to expand by 38%, which is noticeably more attractive.

In light of this, it's understandable that Zhejiang Changsheng Sliding Bearings' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Zhejiang Changsheng Sliding Bearings' P/E

The latest share price surge wasn't enough to lift Zhejiang Changsheng Sliding Bearings' P/E close to the market median. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Zhejiang Changsheng Sliding Bearings' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Zhejiang Changsheng Sliding Bearings that you should be aware of.

You might be able to find a better investment than Zhejiang Changsheng Sliding Bearings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.